The World Bank has reconsidered its previous claim by announcing India’s new estimated growth rate in 2025 to be 7%, a jump from 6.6% considering earlier calculations. The World Bank’s India Development Update (IDU) claims India remains the fastest-growing economy, growing 8.2% in FY23/24.
Reasons justifying the accuracy of the new forecast of the World Bank
The projected growth of India in 2025 can be attributed to many factors, as per the observations of IDU. Some observations suggest the current growth rate is due to a rapid increase in public infrastructure investment and household investment, mainly in real estate. India’s supply side was actively supported by its robust manufacturing outputs, which increased by 9.9%, considering previous numbers. The resilient service activity recompensed the underperformance of the nation’s entire agricultural sector. A few observations and calculations have also suggested improvements in urban unemployment, with a significant indicator showing growth in women’s employment possibilities within the nation.
The trend also indicates a substantial increase in female urban employment, which has grown since the pandemic, making female workers earn more, get viable jobs, and start new businesses. However, a significant focus has been directed towards the female urban employment percentage in India, which was 9.2% in January-March 2023 and dropped to 8.5% as of January-March 2024. The statistics shared by IDU also implicated the youth unemployment rate of India in 2024 to be 17%, which remains elevated considering previous statistics, which suggested the youth unemployment rate in 2023 to be approximately 15.79%.
Another fact implicated in the report is the current account deficit and foreign solid portfolio investments in India, which substantial factors are justifying why India might grow at 7% in 2025. India’s foreign exchange reserves reached an all-time high of $670.1 billion in August, equal to 11 months of cover in terms of import considering FY23/24. Despite such challenges, the World Bank has come forward to implicate India’s medium-term growth as positive, with forecasts suggesting future growth rates to remain stable concerning FY25-26 and FY26-27.
It is also estimated that India’s debt-to-GDP ratio will decline from 83.9% to 82% from FY23/24 to FY26-27. Such a decline is mainly due to the enormous revenue growth and further fiscal consolidation. The IDU has also claimed the essential role of domestic and global trade in influencing the country’s current growth status. It was stated that the post-pandemic reconfiguration of global value chains was the critical factor that created new opportunities for India regarding foreign trade and revenue collection.
The crucial factor is India’s National Logistics Policy (NLP) and other digital initiatives that aim to reduce trade costs. Implementing the NLP has been responsible for increasing India’s competitiveness and ability to efficiently perform in the global markets. The IDU, in response to these statistics and facts, has also made a few suggestions, and the board has recommended a three-pronged approach for the nation to eliminate possible barriers and attain a stable growth rate. The IDU has suggested that India reduce trade costs, eliminate trade complications, and deepen overall trade integration. The board implicated India as a nation that needs to focus on exports in terms of textiles, apparel, electronics, green technology, etc. as well.
Now, let’s discuss the key indicators, presented in the form of a Table, in the official report of the World Bank.
Discussing Key Indicators
Outlook
| Indicator (percent y-o-y growth, unless otherwise specified) | FY22/23 | FY23/24e | FY24/25f | FY25/26f | FY26/27f |
| Real GDP Growth at constant market prices | 7.0 | 8.2 | 7.0 | 6.7 | 6.7 |
| Private Consumption | 6.8 | 4.0 | 5.7 | 6.0 | 6.1 |
| Government Consumption | 9.0 | 2.5 | 4.3 | 5.0 | 5.0 |
| Gross Fixed Capital Formation | 6.6 | 9.0 | 7.8 | 7.7 | 7.7 |
| Exports, Goods and Services | 13.4 | 2.6 | 7.2 | 7.2 | 7.9 |
| Imports, Goods and Services | 10.6 | 10.9 | 4.1 | 6.3 | 7.3 |
| Real GDP Growth, at constant factor prices | 6.7 | 7.2 | 7.0 | 6.7 | 6.7 |
| Agriculture | 4.7 | 1.4 | 4.1 | 3.9 | 3.7 |
| Industry | 2.1 | 9.5 | 7.6 | 7.3 | 7.2 |
| Services | 10.0 | 7.6 | 7.4 | 7.1 | 7.1 |
| Inflation (Consumer Price Index) | 6.7 | 5.4 | 4.5 | 4.1 | 4.0 |
| Current Account Balance (percent of GDP) | -2.0 | -0.7 | -1.1 | -1.2 | -1.6 |
| Net Foreign Direct Investment (percent of GDP) | 0.8 | 0.3 | 1.0 | 1.2 | 1.5 |
| Fiscal Balance (percent of GDP) | -9.6 | -8.5 | -7.8 | -7.5 | -7.3 |
| Debt (percent of GDP) | 82.5 | 83.9 | 83.7 | 83.0 | 82.0 |
| Primary Balance (percent of GDP) | -4.0 | -3.1 | -2.5 | -2.3 | -2.2 |
GDP Growth
The table, taken from the official report of the World Bank, has implicated India’s GDP, which grew by 7% in FY22-23. It also estimated the growth rate to reach 8.2% in FY23/24. Furthermore, the table also suggests that the estimated growth rate will reach 7% again in FY24/25, stabilising at 6.7% in FY25/26 and FY26/27.
Private and Government Consumption
The private consumption rate signifies a slow and steady recovery from 4% in FY23/24 to 6.1% by the end of FY26/27. It also implicates government consumption, which is estimated to increase from 2.5% in FY23-24 to 5% by FY25/26 and FY26/27. The statistics suggest gradual yet significant growth in public spending, which might fuel the current growth rate to higher possibilities.
Gross Fixed Capital Formation
The statistics presented in the tabular representation have also indicated investments in infrastructure and capital formation. It can be seen that both these aspects are expected to grow and peak around 9% in FY23-24. However, it will moderate to 7.7% by the end of FY25-26 and FY26-27.
Exports and Imports
Exports, in particular, are estimated to reach 7.2% growth and continue moving upwards at a growth rate of 7.9% by FY26/27. On the other hand, imports are expected to slow down and fall to 4.1% in FY24/25 after an all-time high of 10.9% in FY23/24. However, the percentage will rebound to 7.3% by FY26/27, possibly affecting India’s trade deficit and lower demand for domestic goods.
GDP Growth of different Sectors (Agriculture/Industry/Services)
Agriculture –
The agriculture sector is estimated to experience slower growth in FY24-25 at 4.1% before thinning to 3.7% in FY26-27.
Industry –
The IDU predicts a strong comeback, with growth reaching 9.5% in FY23/24 and stabilising at 7.2% by FY26-27.
Services –
India’s service sector continues to be the foremost driver of economic growth and progress, where the growth rate is expected to moderate from 10% in FY22/23 to 7.1% by FY26/27.
Inflation
The table suggests inflation will decline from 6.7% in FY22-23 to a significant 4% by FY26/27, effectively indicating better price stability and a rise in spending propensity.
Current Account Balance
As per the forecast, the current account deficit is expected to reduce from -2.0% of GDP in FY22-23 to -1.1% by FY24/25. However, the rates might slightly widen to -1.6% by FY/27. This shows that India has become more competitive than ever and will have more savings than investments shortly. It also shows that the economy is growing at a rapid pace.
Foreign Direct Investment (FDI)
The net FDI inflow is also predicted to rise from 0.8% to 1.5% from FY22-23 to FY26-27, respectively. This evidently shows improved investor confidence and an increase in overall spending power.
Fiscal and Debt Balance
The current fiscal deficit of India will substantially improve from -9.6% of GDP to -7.3% by FY26-27. This will result in lower interest rates, fast economic growth, and reduced possibilities for a monetary crisis.
Moreover, the table also indicates that the debt levels are high right now. Still, they are expected to reduce slightly from 83.9% to 82% from FY23/24 to FY26/27. This shows that India will possibly have an improved financial standing and lasting fiscal consolidation in the coming years.
Verdict
India’s growth rate undoubtedly seems strong, as all indicators seem positive, except a few. The nation needs to maintain good governance and also participate in diversifying their trade portfolio to gain more revenues and reduce its debt. However, rising geopolitical tensions might affect the nation’s growth possibilities. Yet, increased investments in defence capabilities might neutralise the risk possibilities and provide India with a stable free run to grow and establish a solid global presence. It is also crucial for India, as the fastest-growing economy to consider all possibilities it might lack and develop comprehensive plans to maintain long-term stability and ensure that the estimated figures increase substantially shortly.
FAQ
What is the overall trend of India’s GDP growth as per the World Bank’s forecast?
India’s GDP is projected to maintain a steady growth rate in the coming years, with a slight deceleration from 8.2% in FY23/24 to 6.7% by FY26/27.
Which sector is driving India’s economic growth?
The services sector continues to be the primary driver of India’s economy, although the manufacturing sector is also expected to contribute significantly.
How is private consumption expected to evolve?
Private consumption is projected to recover gradually from the pandemic-induced slump, reaching 6.1% by FY26/27.
What is the outlook for investment in India?
Investment in infrastructure and capital formation is expected to peak in FY23/24 and then moderate slightly.
How is India’s trade balance expected to change?
India’s trade deficit is projected to narrow in the coming years due to a slowdown in imports and continued growth in exports.
What are the potential risks to India’s economic growth?
Rising geopolitical tensions, global economic slowdown, and domestic factors like inflation and interest rate hikes could pose risks to India’s growth.
What opportunities does India have for sustained economic growth?
India can leverage its demographic dividend, strong domestic demand, and growing digital economy to sustain its growth trajectory.
What policies can India implement to further boost its economic growth?
India can focus on improving infrastructure, enhancing skill development, promoting exports, and attracting foreign investment.
How can India address the challenges of inflation and rising interest rates?
Appropriate monetary and fiscal policies can help manage inflation and interest rates while maintaining economic growth.
